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    Top 10 Lessons Learned in Selling Your Company-- Private Equity-backed CEOs Share Their Stories

    PE Exits Dinner photo, Dane Estate 2015-02-26 20.01.12

    In March, 2015, at the height of this winter’s snow fall that ultimately landed the year as “worst on record” for Boston, we at BSG had the opportunity to convene a panel of 3 CEOs to talk about exits. In common across these captains of industry?  All had been running private equity backed companies, all were located in the Northeast, and all had led their companies through successful exits, returning significant capital to their PE investors.

    The differences between the 3 CEOs? Two exited to financial buyers (other PE firms), and 1 to a strategic. One was in the medical devices industry, another in building products, and the third in SaaS software.  One was a microcap, (sub 15M in revenues), one lower-middle market (25-50M in revenues), and the third north of $200M.

    The setting for the panel?  The picturesque Dane Estate in Chestnut Hill, Massachusetts.  The format?  Fireside Chat.

    The audience?  Other PE-backed CEOs and private equity investors intent upon sharpening their saws of learning in preparation for their opportunities for exits and liquidity.

    After cocktails and over dinner, the conversation began in earnest.   Each CEO shared their stories around the company they inherited, the lead-up to exit, and the sales process that ensued.

    Although the below does not comprehensively capture all “a-ha” nuggets, we offer here the aggregated top 10 lessons learned across these CEOs and their exit experiences.

    #1: Companies usually have more hair than you thought before you joined as CEO: Make sure not to underestimate how much work needs to be done before a company is ready to enter a sales process.  If you’re joining from the outside, be cautious of overly aggressive exit time lines.  It’s a bit like that vacation traveler adage, “double the money and take half the clothes you packed.”

    #2: Ensure alignment within ownership, board and management:  A smooth process requires upfront alignment among these parties on process, valuation, proceeds, timing, ideal partners and other factors. Once established, regular and thorough communication is required to maintain alignment.

    #3: Be ready to capitalize on market conditions They are many elements that enter into making the decision of when to sell.  Because many of these are beyond one’s control, it is important to prepare the company early in the ownership cycle so that when conditions are right you are prepared to act to take advantage of the window.

    #4: Sell the upside--growth potential for the future:  In attempting to capture maximum value, it is important to answer the question/create the picture of what the business will be like under new ownership.  For many financial buyers they need to believe that EBITDA under their ownership can double or better as a threshold condition of interest.

    #5: Start the process early:   Hire an investment banker (and other advisors) and start the preparation process months before you think you want to go to market. This time is needed to educate the advisors, refine messaging/positioning, create marketing documents/presentations, financial statement and forecast preparation and to start to populate the data room. In one transaction, the CEO spent as much time preparing (5 months) as he did in the entire sales process (5 months). It all paid off. This deliberate approach also allowed CEO and CFO to focus on running the business during the preparation process.

    #6: Pitch Book:  Have it ready, practice a lot, refine based on feedback.

    #7: Be inclusive when shopping the company:  Include more prospective buyers (both financial and strategic) initially to find the right partner.

    #8: Investment bankers:  Interview more than one investment bank. It will let you see who's talking up the deal to get the business.  Don't tell the investment bank you know how much you would be willing to sell the business for.  Let them price it.

    #9: Beware of impact created via internal communication across the employee base: There were two schools of thought on whether to share M&A process more broadly than on a “need to know” basis.

    PRO-sharing: More disclosure is better than less disclosure.  In a larger enterprise with many potential buyers it is difficult to ensure the sale process will remain confidential and it is better if customers, employees and other stakeholders hear the message from management and are kept apprised of key milestones along the way.  Openness may require that a key employee retention program be put in place or to ensure the contract addresses how employees will be treated post-closing to ensure the team is retained and focused until closing.

    CON-sharing:  Keep the management team who are in-the-know small. Hard work but keeps the rest of the team focused and not distracted on transactional “what if’s.”  Keep the overall timeline very condensed. Keeps the momentum moving.

    #10: The highest bidder isn’t always the best buyer: 2 out of 3 CEOs talked about how they ended up selling to bidders who were not top bidder.  In each case, there was good reason to sell to the 2nd highest bidder. One reason was because the high bidder was a direct competitor, and they felt it would put the health of the future business at risk.  The other CEO felt that the financial investor they ultimately selected conveyed a more compelling picture of growth for the company if they acquired it.

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    -by Clark Waterfall on Apr 9, 2015 12:18:31 AM

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